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Can Fastenal (NASDAQ:FAST) Keep Up These Impressive Returns?

Simply Wall St
·3 mins read

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Fastenal (NASDAQ:FAST) looks attractive right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Fastenal is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.32 = US$1.1b ÷ (US$4.1b - US$631m) (Based on the trailing twelve months to June 2020).

Therefore, Fastenal has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 9.0% earned by companies in a similar industry.

See our latest analysis for Fastenal

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roce

In the above chart we have measured Fastenal's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of Fastenal's history of ROCE, it's quite impressive. The company has consistently earned 32% for the last five years, and the capital employed within the business has risen 66% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Fastenal can keep this up, we'd be very optimistic about its future.

What We Can Learn From Fastenal's ROCE

In short, we'd argue Fastenal has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 171% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Fastenal, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.